EURGBP Heads for Recent Lows with Central Banks in Focus

The EURGBP exchange rate is 0.25% lower in early trading on Monday as markets lean on the expectations for a stronger rebound in the UK economy. Last week’s Budget passes without any immediate constraints on the growth outlook.

The EURGBP low was at 0.8540 after Boris Johnson’s reopening plan was released. The market is now heading back there with the pair testing the 0.8600 level once more to start the week.

Central Bank Updates Will Dominate the Week

Central banks will dominate the EUR to GBP exchange rate outlook this week and Thursday will see the European Central Bank announce its latest interest rate decision. Central banks have been happy to sit on rates at their near-zero levels, but the recent activity in the bond market may drive the exchange rate this week.

Today will see the Bank of England Governor Andrew Bailey speaking in a virtual event with the Resolution Foundation. The group are an independent think-tank that seeks to support low-to-middle incomes.

The group gave their thoughts on the latest UK Budget with an article titled. “spending fast, taxing slow,” where they summarized that “further big questions await the Chancellor on protecting household incomes and managing the squeeze on some public services… particularly if the economy turns out weaker than hoped.”

The group will get a chance to grill the BoE Governor on the latest Budget and they may also get his latest thoughts on interest rates and stimulus.

ECB Set to Meet on Thursday to Set Rates

The European Central Bank meets on Thursday to announce their latest interest rate decision to markets and the bank are likely to keep rates near zero. The next path for the bank would be negative rates but they are holding off on that measure for now.

The last two weeks saw a rise in government bond yields in the open market and this may see the ECB acting to increase their weekly bond purchase levels. Weekly bond purchases have been averaging 15 billion euro since July 2020 and the central bank may squeeze this higher to ward off anyone that wants to push rates higher in the Eurozone.

Any further stimulus action would hurt the single currency and could see the EUR to GBP outlook move in sterling’s favour. The BoE Governor could change that if he criticized the latest Budget or the Johnson roadmap but that is maybe unlikely.

The EURGBP is seeking to test the 0.8540 lows from the end of February and may get there today if the BoE Governor is bullish about the Budget and the UK recovery.

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